Fringe benefits tax - a guide for employers

Chapter 10 - Housing fringe benefits

10.1 What is a housing fringe benefit?

A housing fringe benefit arises where an employee is provided with the right to use a unit of accommodation and the lease or licence which grants that right exists at a time when that unit of accommodation is the usual place of residence of the employee.

A unit of accommodation includes:

a house, flat or home unit

accommodation in a house, flat or home unit

accommodation in a hotel, motel, guesthouse, bunkhouse or other living quarters

a caravan or mobile home

accommodation in a ship or other floating structure.

The employee does not have to have exclusive use of the unit of accommodation - the use of shared accommodation as a usual place of residence is a housing fringe benefit.

If the unit of accommodation is not the employee's usual place of residence, the right to use the unit is not a housing fringe benefit. However, it may give rise to a residual fringe benefit (refer to
Residual fringe benefits
).

10.2 Basis of valuation rules

The taxable value of a housing fringe benefit is measured by reference to the market value of the right to occupy the unit of accommodation reduced by any 'recipients rent' which in effect are rental payments.

Market value

Certain factors are disregarded in determining the market value of the right to occupy a unit of accommodation, namely:

any rights of the occupant to have expenses associated with the occupancy (for example, electricity or gas) paid for by you (the employer) or someone else (where the right of occupancy carries with it the provision of gas or electricity without charge to the employee, the market rental value of the housing benefit would need to reflect that condition)

any onerous conditions of the occupancy relating to the occupant's employment (for example, being on call for duty).

This means, in effect, that the right to occupy the unit of accommodation is valued according to what it would command for rent in an open market situation, without taking into account any special employment conditions or associated expenses of the occupant that might be paid by another person. The object is to ascertain the market rental value by reference to the occupied property, and to disregard any matters particular to the person or people who occupy it.

In normal valuation practice, the market rental is what a willing but not anxious person would be prepared to pay the owner to occupy the particular property in its existing condition if it were placed on the open market for rent. Ordinarily, market rental is ascertained by comparing it with similar properties, on the basis that the best evidence of the market rental value of a property is found by examining rents obtained for comparable properties in the locality.

Rental payment

A rental payment is the amount of rent or other consideration paid to the provider of the housing benefit in respect of the housing right. It is not restricted to rental money, but it must be something which is capable of being formally recognised within the lease or licence for the housing right. That is, it must be something for which a cash value can be determined. For example, a lease could specify that an employee will pay the costs of general maintenance of the property, and this would be considered a rental payment.

10.3 Types of housing fringe benefits

For the purposes of calculating the taxable value, there are two categories of housing fringe benefit, namely - benefits provided:

The taxable value is the market rental value of the right to use the accommodation, reduced by any rental payments made by the employee. The market rental value must be calculated by reference to the period during the fringe benefits tax (FBT) year when the employee had the right to use the accommodation.

Accommodation provided in an external Australian Territory (other than Christmas Island and the Cocos (Keeling) Islands) is a housing benefit provided outside Australia.

10.5 Taxable value of a housing fringe benefit provided in Australia

This category of benefit does not include accommodation provided in a remote area of Australia. Remote area housing benefits are exempt from FBT (refer to section
10.8
).

There are two sub-categories of these benefits for valuation purposes, namely:

where the person providing the accommodation is carrying on a business of providing the same accommodation to the public and the unit of accommodation is a caravan or mobile home, or is in a hotel, motel, hostel or guesthouse

any other accommodation.

Accommodation in a caravan, mobile home, hotel, motel, hostel or guesthouse where the person providing the benefit is carrying on a business of providing such accommodation to the public

The taxable value of the right to use a unit of accommodation - that is a caravan or mobile home, or is in a hotel, motel, hostel or guesthouse - is the market rental value of the accommodation, reduced by any rental payments made by the employee. The market rental value must be calculated by reference to the period during the FBT year when the employee had the right to use the accommodation.

If the accommodation is provided to an employee of the hotel, caravan park, etc, and is identical or similar to that provided to paying guests, the taxable value is 75% of the market rental value, less the amount of any rental payments.

For example, consider an employee who manages a caravan park. If the employee lives rent-free in a house in the caravan park, the taxable value is the market rental value of that house. However, if the employee's accommodation is in a mobile home and the caravan park has other similar mobile homes that are let to customers, the taxable value is 75% of the market rental value of the mobile home.

In determining the market rental value in these cases, it is not appropriate to use the daily rate charged to casual guests. Rather, you need to establish an appropriate long-stay occupancy rate. One acceptable measure is to determine the market rental value by reference to rentals charged for equivalent accommodation in the nearest residential quarter (for example, the rent charged for a similar apartment). As an alternative, you could adopt an amount equal to 15% of the daily rate charged to casual guests.

Other accommodation

The taxable value of accommodation other than that described above is the market rental value of the accommodation, reduced by any rental payments made by the employee. You must calculate the market rental value by reference to the period during the FBT year when the employee had the right to use the accommodation.

As an alternative to establishing the market rental value every year, you may base the taxable value for the second and subsequent years on the first year's market rental value. This requires calculating an annual rental value for the first year and thereafter applying an inflation factor. The inflation factor can be obtained from the rent sub-group of the national consumer price index, and is published each year by the ATO. You can use this alternative method for a maximum of nine consecutive years.

If an employee occupies the accommodation for only part of a year, you have to 'annualise' the market rental value before applying the inflation factor. Where the year is a leap year, 366 days are used instead of 365.

Example: Single employee occupying house

An employee occupies a house for 121 days of the year.

If the market rental value for that period is $5,200, the annualised market rental value is:

$5,200 ÷ 121 × 365 = $15,687.70.

Example: Several employees occupying house

An employee occupied a house owned by the employer from 1 July 2014 to 31 March 2015 (that is, 274 days). The market rental value of the house for that period was $11,820. The house is located in New South Wales.

Another employee occupied the house from 1 January 2016 to 31 March 2016 (that is, 91 days). The indexation factor for the state of New South Wales for the year ended 31 March 2016 was 1.032.

A third employee occupies the house from 1 August 2016 to 31 March 2017 (that is, 243 days). The indexation factor for New South Wales for the year ended 31 March 2017 is 1.025.

The house was left vacant except for the periods described above.

No rental payment was made by any of the employees.

The taxable value of the benefit provided to the first employee (in the 2015 FBT year) was $11,820.

The taxable value of the benefit provided to the second employee (in the 2016 FBT year) was $4,040.17. This was determined using the following steps:

Step

Action

Result

1

Obtain the annual rental value equivalent of the accommodation provided in the first year.

$15,745.62 (that is, $11,820 × 365/274)

2

Determine the indexed rental value for the 2016 year.

$15,745.62 × 1.032 = $16,249.48

3

Determine the taxable value of the accommodation provided to the employee according to the period of occupancy.

91/366 × $16,249.48 = $4,040.17

The taxable value of the benefit provided to the third employee (in the 2017 FBT year) was $11,088.60. This was determined using the following steps.

Determine the taxable value of the accommodation provided to the employee according to the period of occupancy.

243/365 × $16,655.72 = $11,088.60

Where substantial improvements to the particular unit of accommodation could be expected to have increased the market rental value by at least 10%, you must determine the value of the housing benefit by reference to the 'new' market rental value. You also have to find a 'new' market rental value if alterations reduce the market rental value by at least 10%.

If the accommodation was occupied at different times during the first year by different employees, and the market rental values differed, the annual rental value for indexation purposes is the weighted average of the annual equivalent of the market rental value of each employee's period of occupancy.

10.6 Accommodation that is not the usual place of residence

The housing fringe benefit rules apply only to accommodation that is the employee's usual place of residence. The rules do not apply where the employee is:

living away from their usual place of residence in order to carry out employment-related duties, or

travelling in the course of performing employment-related duties.

In the former case, the benefit may be an exempt benefit. In the latter case, the 'otherwise deductible' rule may apply to the taxable value of the expense payment fringe benefit or residual fringe benefit.

10.7 Reductions in taxable value

There are a number of circumstances where you may reduce the taxable value of a housing fringe benefit. These are outlined below.

Relocation - temporary accommodation

This concession reduces the taxable value of fringe benefits arising from providing temporary accommodation (including household goods) to an employee who changes their usual place of residence during employment, or to start employment.

Temporary accommodation at former location

The concession applies to temporary accommodation at the employee's former location only if the temporary accommodation is necessary because the former home is unavailable or unsuitable for occupancy because of the relocation (for example, furniture removal). In that case, the concession applies to the temporary accommodation for a maximum 21-day period ending on the day the employee starts work at the new location.

Temporary accommodation at new location

Where the temporary accommodation is at the new location, the employee must start to make sustained and reasonable efforts to buy or lease suitable long-term accommodation as soon as reasonably practicable after starting work at the new location.

The concession is limited to an occupancy period that begins seven days before the day the employee starts work at the new location and ends when the employee could reasonably be expected to occupy the home after it has been purchased or leased.

The concession is ordinarily limited to a maximum occupancy period of four months. However, it may apply for a maximum of 12 months, as follows.

Where the employee gives you a declaration outlining their efforts to find suitable long-term accommodation, the concession may apply for a maximum of six months.

Where the employee:

owned a home at the former location but sold it within six months of starting work at the new location and, during that period, attempted to buy a home at the new location, and

In either case, the concession will end before the four months, six months or 12 months elapse if the employee stops making reasonable and sustained efforts to buy or lease suitable long-term accommodation.

The
Temporary accommodation relating to relocation declaration
must be in a form approved by the Commissioner (refer to
Declarations
).

10.8 Exempt housing benefits

Remote area housing benefits

A housing benefit qualifies as a remote area housing benefit where:

a

For the whole of the tenancy period, the unit of accommodation is in a remote area (that is, it is not located in or adjacent to an eligible urban area).

b

For the whole of the tenancy period, the accommodation is occupied by a person who is your current employee, and the usual place of employment of the employee is in the remote area.

c

It would be concluded that it must be necessary for you to provide accommodation for employees or to arrange to provide such accommodation because:

the nature of your business is such that employees are liable to move frequently from one residential location to another

there is insufficient suitable residential accommodation otherwise available at or near the place or places where the employees are employed, or

it is customary for employers in that industry to provide free or subsidised accommodation for employees.

d

The benefit was not provided to the employee under either:

a non-arm's length arrangement,

an arrangement that was entered into by any of the parties for the purpose, or partial purpose, to obtain the concession.

For most employers, accommodation is in a remote area if it is not in or near an urban centre. Accommodation is classified as being near or adjacent to an eligible urban area and therefore not remote where it is situated is either:

less than 40 kilometres from an eligible urban area with a census population of 14,000 to less than 130,000

less than 100 kilometres from an eligible urban area with a census population of 130,000 or more.

If the accommodation is in zone A or B (for income tax purposes), to be remote it must be located:

at least 40 kilometres from an eligible urban area with a census population of 28,000 to less than 130,000, and

at least 100 kilometres from an eligible urban area with a census population of 130,000 or more.

The population figures are based on the 1981 Census.

Where the shortest practical surface route includes water

When determining whether a location is remote and the shortest practical surface route includes a route by water, the distance between these locations is worked out using the following formula:

[total kilometres of the surface route that are by water x 2] + total kilometres of the surface route that are by land.

Example

Wong Island is 80 kilometres, by the shortest practical surface route, from the centre point of an inland eligible urban area with a population of 140,000. The shortest practical surface route to the island involves 40 kilometres of travel by road and 40 kilometres of travel by sea.

Wong Island is also situated 45 kilometres, by the shortest practical surface route, from the centre point of an eligible urban area with a population of 20,000.

Wong Island is 'remote' as it is 120 kilometres - that is, (40 kilometres by water × 2) + 40 kilometres by land - from an eligible urban area by the shortest practical surface route.

Where the circumstances warrant it, the Commissioner has a discretion to treat a person who resides or works in an area adjacent to an eligible urban area as residing or working outside that area if people who live or work near that person are outside the area.

Where free water is provided to an employee in accordance with a residential tenancy agreement between you and the employee, the water will form part of the housing benefit on which the remote area housing fringe benefit is based. Therefore, the provision of water in this instance is also exempt from FBT.

Extension of the remote area housing exemption for some regional employers

a government body where the duties of the employee are exclusively performed in, or in connection with, a public hospital or a non-profit hospital

a hospital carried on by a non-profit society or a non-profit association

a charitable institution

a public ambulance service

a police service.

For these employers, regardless of whether or not they are located in a zone A or B area (for income tax purposes), an employee's housing will no longer be considered adjacent to an eligible urban area (and will therefore be remote), where it is situated less than 40 kilometres via the shortest practical surface route from the centre point of an eligible urban area of less than 130,000 people.

For eligible urban areas of 130,000 or more, an area adjacent to an eligible urban area (and therefore not remote) will remain as being within 100 kilometres via the shortest practical surface route from that eligible urban area's centre point.

The extended definition of remote area housing for some regional employers only applies to the remote area residential fuel reduction. It does not apply to the other remote area reductions explained in section
19.2
of Reductions in fringe benefit taxable value.

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